Tullow writes off $2.3bn in exploration work due to fall in oil price

AFRICA-FOCUSED oil and gas explorer Tullow Oil has written off $2.3 billion in relation to exploration work and a number of its assets after the oil price rout.

Markets welcomed a cut to expenditure this year and details of hedged oil sales for 2015, with Tullow shares initially trading 3.3 per cent higher.

The shares finished 3p lower at 354.9p.

The London-listed company, which has been under considerable pressure to slash costs amid a collapse in oil prices, cut its losses on exploration work in French Guyana, Mauritania and Norway, and trimmed group investments for 2015 by around $200 million to $1.9 billion.

“We are resetting the business for a low oil price environment,” Tullow chief executive Aidan Heavey said.

Oil companies across the globe have been hit by a 60 per cent drop in crude prices in seven months, putting them under pressure to find new areas of their businesses where costs can be trimmed.

Tullow, which reports fullyear 2014 results on February 11, said it expected to make a gross profit of $0.6bn in 2014, with revenue of $2.2bn, slightly below analyst estimates compiled by Reuters.

Howe ver, analysts welcomed the firm’s cut in exploration costs and the fact that 60 per cent of its 2015 oil sales had been pre-sold at a floor price of $86 per barrel.

The company also has hedges in place for the following two years.

“We see the update slightly on the positive side. The increase of 2016 hedges and the further cut in exploration expenditures are good defensive measures,” said analysts Oriel Securities, who recommend buying the oil company’s stock.

Tullow, Britain’s fourth largest oil and gas firm and a FTSE 100 company, is continuing to review how it can further reduce operational expenses, which will include an as yet unspecified reduction of its 2,000-strong headcount.

The oil company’s key new production asset, its TEN oil field in Ghana, is on track for a mid-2016 start-up.

Irish oil producer Petroceltic International Plc meanwhile said it would focus on improving volumes and costs at its core production assets and take a step back from certain exploration projects as oil prices remain weak.

Petroceltic said the current volatility in oil markets would have limited impact on its daily business as a large chunk of the gas it produces would be sold under either Egyptian fixed-price contracts or contracts that were linked to the cross-border price of gas into Bulgaria from Russia.

The company, which was the target of a failed $800m takeover bid by rival Dragon Oil last year, said it expected to produce 16.5-18.5 million barrels of oil equivalent per day (mboepd) this year, after producing at the top end of its 2014 guidance range.

Petroceltic said the weakness in oil prices would help it attract competitive bids for a contract to help it bring its flagship Ain Tsila project on board.

It estimates fir st gas production from the Algerian asset in 2018.